I was wondering if any variances are generated when using Last or Average cost method. I want to say no, but I am so used to Standard that I get confused.
Is there any difference between purchased and manufactured using these methods? Do you need to do cost rolls using these methods?
Any insight is greatly appreciated.
Yes they can. If you close a job and there are still costs in it (like if you issued materials to make 12, but only received 10 to stock), the closing will generate a MFG-VAR. So costs that should have ended up in inventory of COS, create a variance - and most likely hit a variance account.
Thanks @ckrusen
But in general, variances should not occur because the product being received will just update the existing cost.
Correct. You kind of need to think of variances as two different flavors.
The first is when everything processes in an orderly fashion, but there were unexpected cost differences (scrap, re-work, buy to job being cheaper than expected, etc…)
The other is where “variance” is used to collect costs that didn’t flow right because of timing issues. Like adding material to a job after it was shipped to a customer. These missing costs should have ended up in the COS for that job, but get swept into a variance.